Market Study: MEM in Korea. February 2012. osec.ch
MEM in Korea. Title.
MEM in Korea.
Language.
English
Number of pages.
52 pages
Content.
The Mechanical and Electrical Engineering Industry (German abbreviation: MEM) is an important business sector both for Switzerland and Korea. With its huge production industry – from shipbuilding to consumer electronics – Korea is a highly attractive market for foreign MEM. The MEM market showed a growth rate of at least 4 % in 2011 with an expected total demand for industrial machinery of about 80 bil. USD. New orders have especially been placed for general and special purpose machinery, metal cutting and forming as well as electrical machinery.
Author.
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Mr. Carsten Lienemann, Deputy Secretary General & Head of Marketing Research, Korean-German Chamber of Commerce and Industry - KGCCI
Table of Contents. 1
Management Summary ............................................. 7
2
Korean Machinery Market ........................................ 8
2.1 2.2 2.3
3
Market Structure and Trends............................................ 8 Facility Investments in Core Industries ............................ 9 Business Focus of Foreign MEM ................................... 10
Local Supply of MEM ..................................... 13
3.1 3.2 3.2.1 3.2.1 3.3 3.3.1 3.3.2 3.4 3.4.1 3.4.2 3.5 3.5.1 3.5.2 3.6 3.6.1 3.6.2 3.7 3.8 3.9 3.9.1 3.9.2 3.10 3.11
4
Korean MEM Overview. ................................................. 13 Machine Tools ................................................................ 13 Domestic Market .......................................................... 13 Import Market............................................................... 15 Pumps/Compressors...................................................... 20 Domestic Market .......................................................... 20 Import Market............................................................... 20 Packaging Machinery..................................................... 21 Domestic Market .......................................................... 21 Import Market............................................................... 21 Precision Tools ............................................................... 22 Domestic Market .......................................................... 22 Import Market............................................................... 22 Textile Machinery ........................................................... 25 Domestic Market .......................................................... 25 Import Market............................................................... 25 Printing and Paper Processing Machinery..................... 26 Turbines ......................................................................... 29 Food Processing ............................................................ 29 Domestic Market .......................................................... 29 Import Market............................................................... 30 Plastics and Rubber Machinery ..................................... 31 Scales ............................................................................ 32
Korean Key Markets for MEM ........................ 33
4.1 Automotive Industry ....................................................... 33 4.1.1 Car Manufacturers ....................................................... 33 4.1.2 Automotive Parts Industry ........................................... 33 4.2 Energy Generation and Distribution ............................... 35
4.2.1 Conventional and Atomic Energy................................. 35 4.2.2 Solar Energy ................................................................ 37 4.2.3 Wind Energy................................................................. 40 4.2.4 Green Growth Plan ...................................................... 40 4.3 Electronic Industry .......................................................... 41 4.3.1 Semiconductors ........................................................... 41 4.3.2 Displays........................................................................ 42 4.3.3 Mobile Phones ............................................................. 42
5
Starting Business in Korea .............................43
5.1 Local Distributors ............................................................ 43 5.2 Representative Office ..................................................... 43 5.3 Foundation of Company ................................................. 43 5.3.1 Joosik-Hwesa ............................................................... 43 5.3.2 Yuhan-Hwesa ............................................................... 44
6 6.1 6.2
7 7.1 7.2 7.3
Certification and Custom Tariffs ......................45 Certification of MEM ....................................................... 45 Custom Tariffs ................................................................. 45
Appendix ........................................................47 MEM related Trade Fairs ................................................ 47 Business Associations .................................................... 50 Sources .......................................................................... 50
List of Tables. Table 1: New machinery orders received (Q1/2010-Q3/2011) ....... 8 Table 2: Type of new machinery orders received (2007-H1/2011). 9 Table 3: International machinery trade in Korea........................... 10 Table 4: Machinery new orders and facility investments in Korea 10 Table 5: Main imports of foreign MEM to Korea ............................ 11 Table 6: Domestic machine tool market size ................................ 13 Table 7: Domestic machine tool orders by item ........................... 14 Table 8: Domestic machine tool production by item ..................... 14 Table 9: Domestic machine tool orders by industry...................... 15 Table 10: Laser cutting machinery (HS 8456) .............................. 16 Table 11: Machining centers (HS 8457) ....................................... 16 Table 12: Forging, hammering or die stamping machines (HS 8462)............................................................................................. 17 Table 13: Polishing, grinding,sharpening machines (HS 8460) ... 17 Table 14: Shaping, slotting, broaching and gear cutting machines (HS 8461) ..................................................................................... 17 Table 15: Lathes (HS 8458) .......................................................... 18 Table 16: Drilling and boring machines (HS 8459) ....................... 18 Table 17: Other machine tools for working metal or cement (HS 8463)............................................................................................. 18 Table 18: Machine tools for working stone, ceramics or like mineral materials (HS 8464)...................................................................... 19 Table 19: Machine tools for working wood, cork, bone or similar hard materials (HS 8465) ............................................................. 19 Table 20: Air pumps (HS 8414) .................................................... 20 Table 21: Pumps for liquids (HS 8413) ......................................... 20 Table 22: Machinery for filling (HS 842230) ................................. 21 Table 23: Packing and wrapping machines (HS 842240) ............ 22 Table 24: Measuring or checking instruments (HS 9031) ............ 22 Table 25: Automatic regulating or controlling instruments (HS 9032)............................................................................................. 23 Table 26: Oscilloscopes, spectrum analyzers and other instruments to measure electrical quantities (HS 9030)............... 23 Table 27: Instruments for physical/chemical analysis (HS 9027) . 24
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Table 28: Instruments for measuring the flow, level, pressure or other variables of liquids or gases (HS 9026)............................... 24 Table 29: Machines and appliances for testing the hardness, strength or other mechanical properties of materials (HS 9024) .. 24 Table 30: Hydrometers and similar floating instruments ............... 25 Table 31: Leather and clothing machinery (HS 8444, .46, .47, .49, 8451 -.53) ...................................................................................... 25 Table 32: Textile preparation machinery (HS 8445) ...................... 26 Table 33: Auxiliary machinery (HS 8448) ...................................... 26 Table 34: Offset printing machinery (HS 8443) ............................. 27 Table 35: Printing plates and other part producing machinery (HS 8442) ............................................................................................. 27 Table 36: Paper production machinery (HS 8439)........................ 28 Table 37: Book binding machinery (HS 8440) .............................. 28 Table 38: Paper cutting and editing machinery (HS 8441) ........... 28 Table 39: Steam turbines (HS 8406) ............................................. 29 Table 40: Hydraulic turbines (HS 8410) ........................................ 29 Table 41: Food machinery (HS 8437.80, .90, 8438 (without .10 and .20), 8479.20) ................................................................................ 30 Table 42: Bakery and pasta machinery (HS 8438.10) .................. 30 Table 43: Confectionary and chocolate machinery (HS 8438.20) 31 Table 44: Machinery for working rubber or plastic (HS 8477) ...... 31 Table 45: Scales (HS 8423) .......................................................... 32 Table 46: Korean car manufacturers............................................. 33 Table 47: Car production capacity by company ............................ 33 Table 48: Korean automotive parts manufacturers ....................... 34 Table 49: Number of tier 1 car industry suppliers by size ............. 35 Table 50: Overview power plants in Korea ................................... 35 Table 51: Power transmission facilities 2011 ................................ 36 Table 52: New and Renewable Energy production....................... 37 Table 53: Public Subsidies for Renewable Energies .................... 37 Table 54: Official Goals for Renewable Energies 2008–2030 ...... 38 Table 55: Photovoltaic Feed-in tariffs since 2010 ......................... 38 Table 56: General Feed-in tariff (since 2010) ............................... 39
Table 57: Capacity Distribution of all PV Installations .................. 40 Table 58: Capacity of Installed Wind Energy ................................ 40 Table 59: Investments in Wind Energy in comparison to other renewable energies in Korea........................................................ 41 Table 60: Custom tariffs for selected MEM products made in Switzerland ................................................................................... 45 Table 61: MEM trade fairs in Korea .............................................. 47 Table 62: Relevant business associations in Korea ..................... 50 Table 63: Sources ......................................................................... 50
3 Local Supply of MEM. 3.1 Korean MEM Overview Korean MEM producers – as ranked by production output – are mostly focusing on
machine tools, precision tools (incl. medical machinery), semiconductor machinery, construction and mining machinery and pumps/compressors.
The Korean price and technology level is midrange and positioned below European or Japanese competitors but significantly higher compared to Chinese machinery. In the following chapters, especially the sectors in which Swiss companies are most successful – also in other countries - will be analyzed in detail, starting with the domestic market and then giving an overview of import market trends.
3.2 Machine Tools
They are also active in most other machinery sectors but to a minor extent. In 2009 (latest available numbers), around 7,800 Korean machinery companies with 10 or more employees have been registered. Total workforce is around 254,000, making this business sector an important industrial employer in Korea. SME are dominating the machinery business. These companies have a significantly lower level of internationalization than their European counterparts. Just 1,000 machinery companies have a staff of above 50. The biggest company is Doosan Infracore (turnover 2010: 4.3 tril. KRW, +59.7%) which is focusing on construction machinery and machine tools.
Table 6: Domestic machine tool market size; in: mil. KRW
The 2011 machine tool production of 6.25 tril KRW (5.6 bil. USD) ranks Korea no. 5 after China, Japan, Germany and Italy (source: KOMMA 2012). With a volume of 1.7 tril. KRW (1.5 bil.USD) in 2011, Korea was also the 4th biggest importer of machine tools in the world. 2.1 tril. KRW (1.9 bil. USD) of machine tool exports make Korea the 7th biggest exporter of these goods. With a volume of 2.12 bil. USD Switzerland is the 7th biggest producer of machine tools worldwide in 2010. KOMMA forecasts the Korean machine tool market for 2012 as follows: production 6.7 tril. KRW (6.1 bil. USD), exports 2.4 bil. USD and an increase of imports of 8.6% to 1.9 bil. USD. The market for imported machine tools will thus remain bullish. 3.2.1 Domestic Market The domestic market size in local currency is displayed in Table 6. The 2010 market volume (production+imports-exports) is 4.93 tril.
Domestic
Export
Export dependence (%)
2,961,280
2,430,890
530,390
30.2
49.5
976,203
2,937,441
2,415,990
521,451
26.6
40.4
2,415,148
1,667,362
4,082,510
3,279,989
802,521
33.2
50.8
2004
2,823,954
1,897,305
4,723,959
3,623,110
1,100,849
38.9
52.4
2005
3,595,934
2,119,998
5,715,932
4,530,876
1,185,056
33
46.8
2006
3,927,084
2,464,560
6,391,644
4,860,884
1,530,760
39
50.7
2007
4,473,781
1,255,079
5,728,860
4,041,769
1,687,064
37.7
31.1
2008
4,831,000
1,474,070
6,305,070
4,194,520
2,110,550
43.7
35.1
2009
3,519,696
1,445,788
4,965,484
3,418,417
1,547,067
44.0
42.3
2010
5,200,000
1,668,861
6,868,861
4,929,070
1,939,791
37.3
33.9
Supply
Demand
Year
Total Production
Import
2001
1,759,160
1,202,120
2002
1,961,238
2003
Source: KOMMA, 2011
Import dependence (%)
5 Starting Business in Korea. 5.1 Local Distributors Swiss companies that do not want to establish an own branch office or subsidiary in Korea have to find a Korean distributor. For this search process local support is highly recommended. Generally speaking, European companies that meet a potential distributor by chance on a trade fair and continue the business relationship because of e.g. a good English language level of the Korean partner, sometimes end up with a company that is not best suited. The business partner search is a systematic process. It is recommended the following steps, which are as well applied in our agent-search service:
Pre-Screening o Analysis of companies that have import experiences with the respective MEM segment o Portfolio assessment (no competing products?) o Company size, ownership structure and shareholders, financial situation, after sales service assessment o Availability of bilingual staff o Check of reference customers and network Contacting o Introduction of Swiss company to selected potential distributors by a third party (e.g. Swiss Business Hub Korea, other Swiss companies) o Korean translation of short company presentation o Interpreter at first meeting (Must!) Contract with distributor o No exclusive agreements o Register all trademarks/patents under company name by own lawyer; never delegate this tasks to agent o No contract without local legal advice (Swiss Business Hub Korea can recommend local lawyers) o Arbitration clause (recommendation: choose Korean law and refer to Korea Commercial Arbitration Board with “international rules”)
5.2 Representative Office The representative office is not a “real” company but a tax-free form of representation that is not allowed to generate income. The
representative officer is collecting information on behalf of his principal abroad and is a contact point for Korean customers. However, he is not allowed to actively sell or issue invoices or generate any kind of revenues. All invoices and contractual relations have to be established between headquarter and client. The representative office might be a low level start in the Korean market and can be changed later into the legal form of a company. However, it is not considered as serious as other legal forms and Swiss companies should consider the legal limitations of the representative office.
5.3 Foundation of Company For the foundation of a company 4 legal forms may be chosen according to the “Commercial Act”:
Joosik-Hwesa (like Swiss „Aktiengesellschaft“), Yuhan-Hwesa (limited liability company), Hapmyeong-Hwesa (general partnership) and Hapja-Hwesa (limited partnership)
Most foreign companies opt for Joosik-Hwesa (around 90%) and a smaller part establishes a Yuhan-Hwesa. The other two legal forms are mostly not an option due to liabilities and administrative reasons. Joosik-Hwesa is also the most respected type of company in the Korean business world. The foundation of company has to be accompanied by local lawyers. OSEC/Swiss Business Hub Korea can recommend suitable law firms. Generally, legal costs amount to 10,000-16,000 CHF. Overall, there are no barriers for establishing business in the Korean MEM market. 5.3.1 Joosik-Hwesa Founding party may be 1 person that also takes over all the shares. The Joosik-Hwesa has to be registered in order to be fully operative. Also, the articles of association have to be signed by the founding member(s). The founding capital limit has been suspended; however, lawyers recommend to have a minimum investment volume of 100 mil. KRW (90,000 USD) in order to benefit from the investment protection and capital transfer guarantees as defined in the Foreign